CFPB brings welcome attention to “credit invisibles

By: Barrett Burns
Date: June 25, 2020

Dear Colleague:

The Consumer Finance Protection Bureau (CFPB) recently issued a report about U.S. consumers with limited credit records. Its focus is a group the CFPB calls “credit invisibles,” who have no credit files at all, but the paper also makes reference to another group: consumers “considered unscoreable based on a widely used credit-scoring model.” These consumers have credit files at one or more of the national credit reporting companies, but they contain too little credit history or insufficient recent credit history to qualify for conventional credit scores.

The CFPB study further notes that consumers falling into these two groups are likelier to come from poor neighborhoods than consumers with less limited credit histories, and that black and Hispanic consumers are likelier to exhibit limited credit histories than caucasian or Asian consumers.

We agree with the CFPB that conventional models leave millions without credit scores and, as such, outside the reach of mainstream finance. While our numbers don’t line up exactly with the CFPB’s, its findings are in general agreement with our own study of the unscoreable population. The VantageScore 3.0 model can assign scores to the vast majority of these consumers, bringing them one step closer to their financial goals. Based on our analysis, the VantageScore 3.0 model generates a highly accurate credit score for 98% of consumers with a credit file.

The message for lenders is that 30 to 35 million consumers who cannot be scored using conventional credit-scoring models can be scored using the VantageScore 3.0 model.

What’s more, the VantageScore 3.0 model’s ability to generate accurate scores using rent- and utility-payment data when they appear in consumer data files means that more widespread reporting of rent, utility and telecom payments would enable VantageScore 3.0 to score even more consumers. For policymakers and other influencers, it is important to encourage the reporting of these payments to the national credit reporting companies—and to urge the use of more inclusive models such as VantageScore 3.0.

The CFPB report confirms through scientific analysis what policymakers, lenders, consumer and civil rights advocates have all observed and intuitively understand: Conventional scoring models commonly in use (and required to be used by the GSEs) leave a significant number of otherwise creditworthy borrowers locked out of mainstream finance because, to those models, they are “invisible.” The VantageScore 3.0 model makes many of those consumers “visible” to lenders.

A final note: In the past, we at VantageScore have used the term “credit invisible” in reference to consumers who are conventionally unscoreable but whom the VantageScore model can score. As noted above, the CFPB defines “credit invisibles” differently: The CFPB applies the term “credit invisibles” to consumers who have no credit files whatsoever.

It is heartening to see industry-wide attention to this issue, and we are proud to have blazed this trail.

Warmest regards,

Barrett Burns